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Last Updated: Thursday, 7 September 2006, 11:11 GMT 12:11 UK
UK house prices climb in August
Browsing at an estate agent
Housing market activity remains "firm", the Halifax says
House prices rose by 1% in August, bouncing back from a shock drop in the previous month, according to Halifax, the UK's biggest mortgage lender.

The Halifax said that while the UK housing market had sound fundamentals there were signs that "house price growth continues to moderate".

In the three months through August prices rose 0.2%, compared with 2.9% in the preceding three-month period.

Higher interest rates and energy bills were slowing growth, the Halifax said.

The mortgage lender added that annual house price inflation was 8.2% in August, down from 8.8% in July. It expects the rate of growth to slow to 5% by the end of this year.

Demand constraints

The Halifax's findings echo those of the latest survey from the Nationwide building society, which said prices rose by 0.8% in August.

The Halifax found that the average property now costs 179,043 and said market activity was "firm", with Bank of England figures showing that the number of loans approved for house purchases in the three months to July was up 24% compared with a year ago.

House price graph

However, it said a number of developments were set to cool demand and thus slow the rate of house price growth.

"The further substantial increases in utility bills that have been recently announced are expected to put pressure on householders' finances," said Halifax chief economist Martin Ellis.

"Higher mortgage rates following the Bank of England's decision to raise official interest rates last month and the increase in fixed rates that has already occurred since the spring are likely to dampen housing demand.

"These developments, combined with the historically high level of house prices relative to average earnings, are expected to constrain housing demand and moderate house price inflation over the remainder of the year," he added.

Rate movements

The Bank of England kept UK interest rates on hold at 4.75% on Thursday. The decision had been widely expected after the Bank raised borrowing costs last month by a quarter of a percentage point.

However, some analysts are predicting a further rate rise before the end of the year.

Howard Archer, economist at Global Insight, said the latest Halifax survey added to evidence that the housing market had regained its upward momentum.

However, he said even the small rise in rates seen so far "could have a significant dampening impact on housing market activity, given stretched affordability".

"Many potential house buyers will be alarmed by the very real possibility that interest rates could rise again before the end of the year.

"We think these mounting affordability pressures will increasingly outweigh the support to the housing market coming from high employment and a relatively healthy economy."




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